What is a health insurance premium?

Key points

• Your health insurance premium is the monthly cost of maintaining a policy.
• Factors such as the amount of your deductible, your plan’s network and your age affect the cost of your premium.
• If you have a Marketplace plan, you may be eligible for tax subsidies that reduce or even eliminate your premiums, depending on your income.

A health insurance premium is how much you pay the health insurance company every month to keep your policy in effect. The average benchmark marketplace plan costs $477 per month, according to data from the Kaiser Family Foundation. Many different variables affect the size of your premium, so it pays to know how premiums are set when looking for an affordable health insurance plan.

What is a health insurance premium?

Your health insurance premium is what you pay every month for coverage. Even if you don’t use any health care services during the month, you still have to pay the premium.

Health care laws only allow insurance companies to use the following five factors to set premiums.

Plan category

There are five plan categories to choose from:

• Platinum
• Gold
• Silver
• Bronze
• Catastrophic

Platinum plans typically have lower out-of-pocket costs, but come with a higher premium. Bronze plans usually require you to pay more out of pocket, but have a lower monthly premium. 

Catastrophic plans are generally the cheapest, as they have extremely high deductibles. Only people who are 30 and younger can apply. But if you qualify for an affordability or hardship exemption, you may be able to get a catastrophic health plan if you’re over 30. If you qualify for a premium tax credit, you may find that a bronze or silver plan is actually cheaper than a catastrophic plan.

See how much you might pay: Average cost of health insurance

Age

As you get older, your premium can increase. Under current law, health insurance premiums can be at most three times higher for older individuals than they are for younger people.

Who’s covered

Your premium will be higher if your policy covers your spouse or dependents,  instead of just a single person.

Tobacco use

If you use tobacco products, insurers can charge up to 50% more for insurance.

Location

Competition, cost of living and local rules in your state and ZIP code can also affect how much you pay for health insurance premiums. 

The average benchmark marketplace plan costs $477 per month, according to data from the Kaiser Family Foundation. (The benchmark plan, which is the second-lowest-cost silver plan offered on the Health Insurance Marketplace, is used to calculate tax subsidies.)

Other insurance costs

Your health insurance premium is only one of many costs of health care. You’re also responsible for the policy.

Deductible

Your deductible is how much you have to pay before your insurer will start covering medical services (beyond eligible preventive care services that are always covered). The lower your deductible, the higher your monthly premium.

Copayments

You may have to pay this fixed fee for services, such as $20 per visit or $60 for a specialist appointment. The copays you make go toward your deductible and out-of-pocket maximum totals.

Coinsurance

Coinsurance is a percentage of services that you have to pay — 20%, say — after reaching your deductible. Like copayments, the coinsurance you pay also goes toward your annual deductible and maximum out-of-pocket responsibilities. 

Annual out-of-pocket maximum

The annual out-of-pocket maximum is the total amount you’ll have to pay per year for covered services. 

These expenses make up your out-of-pocket costs. With employer plans that are compliant with the Affordable Care Act and plans purchased through the Health Insurance Marketplace, your out-of-pocket costs are capped.

For example, for 2024, the out-of-pocket maximum for a marketplace plan is $9,450 for an individual and $18,900 for a family, not including your premiums and spending on services that are not covered or out-of-network. Once you reach that threshold, your insurer has to cover the entirety of your covered medical services until the plan year ends.

Who is responsible for paying health insurance premiums?

Depending on the type of coverage you have, you may get assistance with your premiums.

Employer-sponsored health insurance

According to the Kaiser Family Foundation, 51% of employers offer health benefits to at least some of their workers, and most workers with insurance have to pick up at least part of their premiums. 

In 2022, the average premium for a family on an employer-sponsored health insurance plan was $22,263 per year, or $1,855 monthly. For single coverage, the average annual premium was $7,911, or about $659 per month.  The employee’s annual contribution averaged $6,106 for family coverage and $1,327 for single coverage.

Marketplace policies

If you don’t get insurance on the job — say you’re self-employed or an early retiree — you can purchase a policy through the Health Insurance Marketplace. With this option, you are responsible for paying the entire premium, but you may be eligible for subsidies that reduce the cost. There are two subsidies.

Advanced Premium Tax Credit

Depending on your income and the size of your household, you may qualify for a tax credit that can reduce or even eliminate your monthly premiums.

In most years, the income limit for qualifying is 400% of the federal poverty level for your family size and state. For tax years 2021 and 2022, the credit was expanded.

If you find that you used a larger tax credit than you were due based on your income, you have to pay back the excess when you file your tax return.

Cost-sharing reductions

Cost-sharing reductions are provisions of the Affordable Care Act that reduce out-of-pocket costs by offsetting the cost of your copays, coinsurance and deductible.  If you qualify, you can only get these extra savings if you enroll in a silver category plan through the Health Insurance Marketplace.

Tip: You can use the Kaiser Family Foundation’s subsidy calculator to estimate how much financial help you might be entitled to.

Medicare

If you are a Medicare beneficiary, you typically don’t pay a monthly premium for Medicare Part A (hospital coverage). However, you do have to pay a premium for Medicare Part B (medical coverage). The standard Part B premium in 2024 is $174.70, but it goes up for higher-income Medicare enrollees. You may also have a premium for Medicare Part D, which covers prescription medications.

If you decide to enroll in a Medicare Advantage plan, premiums vary and are in addition to your Medicare Part B premium.

Medicaid

Low-income individuals can qualify for no-cost or reduced-cost health insurance through Medicaid. Medicaid eligibility and costs can vary by state, and states can charge limited premiums for certain income levels.

Choosing a health insurance policy

When researching your health insurance options, pay attention to policy premiums. You will likely have to pay at least a portion of this monthly cost of maintaining coverage if you have employer-sponsored coverage. If you purchase coverage through the Marketplace, you could be responsible for the entire premium. You can use a Marketplace Plan calculator to estimate how much a Marketplace policy would cost based on your location, family size and income.